Wall Street Breakfast: Must-Know News

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Ford confirms Volvo sale. Ford (NYSE:F) confirmed Wednesday that it struck an agreement to sell Volvo, its Swedish auto brand, to China's Geely, and plans to close the deal in Q2 2010. Although not disclosed, some expect the sale to bring in some $2B, below the $6.45B Ford paid for Volvo in 1999. In a statement, Ford said the prospective sale would enable it "to continue to focus on and implement its core ONE Ford strategy."

Business investment comes off life support. The Equipment Leasing and Finance Association, a trade group for the lenders that finance half of all the capital equipment investment in the U.S., says the sharp pullback in business borrowing that marked the recent downturn moderated notably in November. ELFA's capex financing index fell 7% to $4B, the smallest year-on-year decline this year. "While by no means robust, demand for capital equipment seems to picking up," ELFA president Ralph Petta said. "We are hopeful that this trend continues as the overall economy rebounds." But other metrics, particularly a jump in chargeoffs (to 2.4% from 1.7% m/m) and delinquencies (to 4.5% from 4.2% m/m), suggested businesses were still struggling to service existing financings.

AIG slow to repay bonuses. AIG (NYSE:AIG) executives have yet to fork over millions of dollars in bonus money, despite promising to do so after NY Attorney General Andrew Cuomo threatened to publish the names of executives who received the money. AIG, rescued in a U.S. bailout, said it would hand back $45M in bonuses paid to executives by the end of 2009, but has repaid just $19M to date, according to a SigTARP report. Some executives have left the firm with cash in hand, while others are waiting for the outcome of talks between the company and the Obama administration's pay czar.

Vultures jostle over FDIC debt sales. Sources say more than a dozen investors are in the running to buy a $1.1B portfolio of CRE loans held by Franklin Bank, IndyMac Bank and other failed lenders - a fraction of the FDIC's growing collection of real-estate loans. Demand has grown intense after funds raised billions of dollars to buy discounted debt. But, sensing a bottom, many banks aren't willing to sell, making the FDIC practically the only game in town, with about $30B in real-estate debt held by failed banks coming up for sale over the coming year.

Geithner asks small banks to loosen up. Treasury Secretary Timothy Geithner and President Obama told a gathering of small bank leaders at the White House Tuesday that they'd better start lending more or they would bear responsibility should the recovery falter. Geithner said the real risk is that "banks are not lending enough and not going to provide the capital businesses need to grow for the economy to strengthen going forward." On a more optimistic note, he said economic growth was accelerating and that rising consumer confidence and consumer spending were positive indicators.

Housing, GDP hint at recovery. Sales of previously owned homes jumped to the highest level in nearly three years in another sign the economic recovery was gaining steam. The National Association of Realtors said existing home sales rose 7.4% to 6.54M units/year in November, exceeding analysts' 6.25M unit forecast. Meanwhile, the Commerce Department said Q3 GDP grew at 2.2%/year, not the 2.8% pace reported last month, but a healthy gain from the 0.7% contraction seen in Q2. "The economic reports of late have been very upbeat. Most people are looking now for 3.5-4% GDP growth in Q4, and the housing numbers are the icing on the cake," Baird's Bruce Bittles said.

Buffett dumps more Moody's shares. Berkshire Hathaway (NYSE:BRK.A), Moody's (NYSE:MCO) biggest investor, cut its stake for a sixth time since July, to 34%, as the rating agency continues to struggle with profit declines, lawsuits and criticism from regulators. Warren Buffett's firm sold 87,992 shares on Dec. 18 at $26.77/share; Berkshire held 48M shares Berkshire at the end of June.

Microsoft slapped with patent fine. A federal appeals court upheld a ruling saying Microsoft (NASDAQ:MSFT) must pay $290M to Canadian software company i4i Inc. for violating a patent related to XML functionality, and must remove the feature from its software by Jan. 11. Microsoft said the decision would have little impact on Word or Microsoft's Office package, and that it may appeal the ruling.

AIG says no to Chartis IPO. AIG (AIG) CEO Robert Benmosche took a fresh look at the firm's property-casualty unit, Chartis, and liked what he saw so much that he declared it a core holding that's no longer for sale, sources say. The firm had said in April it was pursuing an IPO or minority stake sale. Benmosche is slowing the pace of divestitures to boost the value of assets needed to repay loans in the $182.3B bailout, and has already halted at least two auctions.

JAL hits turbulence. Japan Airlines may forfeit government guarantees on its loans unless it meets certain demands – the latest chapter in protracted efforts to restructure the unprofitable carrier. Delta Air Lines (NYSE:DAL) and American Airlines (AMR) are battling to cement a partnership with JAL to gain access to its lucrative network of flights to Asia, with JAL leaning toward Delta. The Japanese government is trying to force JAL to reduce its retiree benefits.

FDA clears Merck, sort of. Merck's (NYSE:MRK) cholesterol drugs, Vytorin and Zestia, probably don't increase the risk of cancer or cancer-related death, the FDA said, but added an association cannot be definitively ruled out. The FDA previously shocked the market when it finished a review of a clinical trial that showed an increased risk of cancer and deaths from cancer in patients taking Vytorin compared with those given a placebo.

China may choke Internet access. Chinese web surfers may have their internet access limited as China enforces a new rule requiring companies to register their domains with the government. The Government said it's cracking down on pornography, but others fear it's an effort to keep a tight control over the public. The rules did not specify whether the new measure applies to overseas websites, but local media reported the risk that foreign sites that have not registered could also be blocked.

Earnings: Tue. After Close

Cintas (NASDAQ:CTAS): FQ2 EPS of $0.39 misses by $0.04. Revenue of $885M (-1%) vs. $890M. "Given our businesses’ correlation to employment levels, it is unlikely that we will return to steady growth until the U.S. job market begins to recover ... We believe that current analyst expectations for Cintas' revenue and earnings are too optimistic." Shares -7.2% AH. (PR)

Red Hat (NYSE:RHT): Q3 EPS of $0.17 beats by $0.01. Revenue of $194M (+18%) vs. $188M. "Strong bookings, particularly in North America, led to strong billings and greater than 20% growth in subscription revenue and deferred revenue, as well as further improvement of non-GAAP operating margins." Shares +7.1% AH. (PR)